Celestial Nutrifoods

This blog is intended to track the legal outcome of Celestial Nutrifoods, whose assets reached 800 million Singapore dollars by the time it was suspended in 2009, and to facilitate communications among investors. So please comment as much as possible.

If you are an investor and you think that there has been wrongdoing at
Celestial Nutrifoods then you need to file a report with the Commercial Affairs Department (CAD). They handle investigations on matters such as
corporate fraud. If you do not file a complaint, no one will ever be
investigated or punished.

You also need to file a report with the Singapore Exchange since Celestial Nutrifoods failed to disclose asset transfers and lender agreements, a violation to SGX's rules. Write to the SGX Regulatory Matters Group at the following address:

The Liquidator of Celestial Nutrifoods Limited (the “Company”) wishes to announce that:

1. On Friday, 2 December 2011, the Winding Up Application was heard in the High Court of the Republic of Singapore before the Honourable Justice Lai Siu Chiu (“Justice Lai”);

2. At the hearing, Justice Lai ordered the Company to be wound under the provision of the Companies Act (Cap 50), and that Steven Yit Chee Wah, care of FTI Consulting (Singapore) Pte Ltd, be appointed as Liquidator of the Company.

The Liquidator will provide further updates as and when appropriate.

Any queries in relation to this matter may be directed to Hubert Chang of this office on (+65 6831 7820).

The Provisional Liquidator of Celestial Nutrifoods Limited (the “Company”) wishes to announce that:

1. the initial hearing by the High Court of the Republic of Singapore (the “Court”) of the application for the winding up of the Company (“Winding-Up Application”) presented by BNY Corporate Trustee Services Limited (the “Trustee”), in its capacity as trustee of the S$235,000,000 Zero Coupon Convertible Bonds due 2011 (the “Bonds”) issued by the Company, took place on 21 January 2011;

2. the board of directors of the Company had filed a summons in relation to an application (the “Application”) to set aside the Order of the Court dated 24 December 2010, pursuant to which the Provisional Liquidator was appointed. The Application was scheduled to be heard by the Court on 8 February 2010;

3. at the hearing on 21 January 2011, the Honourable Justice Quentin Loh directed that the substantive hearing of the Winding-Up Application be adjourned to a date not earlier than 21 March 2011 to enable the Trustee and the directors of the Company to file additional evidence with the Court in relation to the Application;

4. no additional evidence was filed by the directors of the Company. In addition, several directors of the Company have since resigned their positions with the Company and, as a consequence, have withdrawn their Application and have advised the Court that they will not be contesting the Winding-Up Application; and

5. the Winding Up Application is scheduled to be heard at 10am on 2 December 2011 in the High Court of the Republic of Singapore.

Pending the outcome of the hearing of the Winding-Up Application, the Provisional Liquidator is continuing his investigations into the affairs of the Company and will provide further updates as and when appropriate.

Any queries in relation to this matter may be directed to Hubert Chang of this office on (+65 6837 7820).

The Provisional Liquidator has taken steps to assert control over the Company’s subsidiaries in the British Virgin Islands (“BVI”) and the People’s Republic of China (“China”) and commence investigations into the affairs of the subsidiaries. The Company has three (3) immediate wholly owned subsidiaries in the BVI, namely Clear Faith Holdings Limited, Giant Fortune Group Limited and Max Dragon Investments Limited (collectively “the BVI Subsidiaries”). Initially, the registered agent of the BVI Subsidiaries refused to recognise the appointment of the Provisional Liquidator pursuant to the Order of the High Court of the Republic of Singapore dated 24 December 2010 (“Appointment Order”) and refused to accede to the instructions of the Provisional Liquidator to register a change in the board of directors of the BVI Subsidiaries. In turn, this prevented the Provisional Liquidator from immediately taking action, through the BVI Subsidiaries, to gain control of the subsidiaries located in China.

In order to resolve the abovementioned situation, the Provisional Liquidator had no alternative but to seek recognition of the Appointment Order from the Supreme Court of Bermuda. The Supreme Court of Bermuda duly recognised the appointment of the Provisional Liquidator on 31 January 2011.

Having changed the composition of the boards of directors of the BVI Subsidiaries, the Provisional Liquidator sought to exercise the powers of the BVI Subsidiaries to change the board of directors and the legal representatives of their Chinese subsidiaries, Daqing Sun Moon Star Co., Ltd, Daqing Celestial Sun Moon Star Protein Co., Ltd and Daqing Weitian Energy Co., Ltd (collectively “the PRC Subsidiaries”). The Daqing branch of the Administration for Industry & Commerce (“AIC”) refused to register the proposed changes on the basis that the PRC Subsidiaries are no longer owned by the BVI Subsidiaries. In this regard investigations since undertaken suggest that the following share transfers have been registered by the Daqing AIC:

shares representing 2% of the issued shares of each of the PRC Subsidiaries were transferred to Weihai Zhuozhan Import & Export Co. Ltd. (威海桌展进出口有限公司)on or around 11 August 2010;

shares representing 73% of the issued shares of each of the PRC Subsidiaries were transferred to Weihai Guosheng Real Property Development Co. Ltd. (威海国盛房地产开发有限责任公司) on or around 4 December 2010; and

shares representing 25% of the issued shares of each of the PRC Subsidiaries were transferred to Rui Feng Group Limited (锐丰集团有限公司)on or around 4 December 2010;

None of the abovementioned share transfers have previously been disclosed to the Singapore Exchange (“SGX”) by the Company’s directors. The Company’s Chairman has, upon enquiry by the Provisional Liquidator, since advised that the transfers occurring on or around 4 December 2010 arose as a result of China Construction Bank (the PRC Subsidiaries’ primary banker) exercising their collateral rights with respect to the shares in the PRC Subsidiaries upon becoming aware that the Company was to be delisted from the SGX. In this regard, the Provisional Liquidator notes that the existence of share pledges over the shares in the PRC Subsidiaries was also not previously disclosed to the SGX, nor was any default under the loan facilities of China Construction Bank or the enforcement action taken by China Construction Bank.

The Provisional Liquidator is currently investigating the abovementioned share transfers. The Chairman of the Company has commenced communicating information to the Provisional Liquidator in relation to these transfers. The Provisional Liquidator will continue to investigate in this regard and take such action as he deems expedient.

The Provisional Liquidator’s investigations have also revealed significant transfers to external parties of the Company’s cash holdings in the year, and in particular in the six months preceding the appointment of the Provisional Liquidator, at a time when the Company, in the Provisional Liquidator’s view, appeared to be insolvent (given the indebtedness to bondholders which was immediately due and payable). In this regard, approximately SGD16.7 million was paid to a company incorporated in the BVI who has not responded to the Provisional Liquidator’s correspondence but who, based on the advice of the Company’s Chairman, is a supplier to one of the Company’s PRC Subsidiaries. The Provisional Liquidator is currently inquiring into the above transfers.

At this point in time the Provisional Liquidator considers it extremely unlikely that any dividend will be paid to the Company’s shareholders.

Any queries in relation to this matter may be directed to either Mark Chadwick or Hubert Chang of this office (+65 6831 7820).

**IMPORTANT COURT DATE SET FOR A MARCH 21st - EXPECT DECISION ON "WINDING-UP APPLICATION" AND "PROVISIONAL LIQUIDATOR"**
As previously reported, the High Court of Singapore is expected to hear arguments on March 21st, 2011, relating to the "Winding-Up" application filed by Bank of New York Mellon (BNY), the trustee of Celestial Nutrifoods' outstanding convertible bonds. The Board of Directors of Celestial Nutrifoods has challenged the "Winding-Up" application so that attempts to restructure the firm can be blocked.

On March 21st, the High Court of Singapore will also hear arguments with regards to the recent appointment of a "Provisional Liquidator". In December 2010, the High Court appointed FTI to oversee the orderly restructuring of Celestial Nutrifoods. The Board of Directors has challenged this decision and is trying to fight this appointment. The Board wants management to retain control of the company's assets, despite the massive value destruction it has overseen.

Clearly the upcoming court date is very important. In order for an orderly restructuring of Celestial Nutrifoods to proceed, the court must accept the "Winding-up" application and re-affirm FTI as the "Provisional Liquidator". FTI can then take the actions necessary to recover fraudulent conveyances, pursue potential asset sales, hire competent turnaround managers and remove the current (entrenched) Board of Directors. These steps are necessary if investors are to recoup their investments in the company.

This is the hotel Ming Dequan, the Executive Chairman of Celestial Nutrifoods, built in Daqing, Heilongjiang. It is highly likely that it was financed using funds from Celestial Nutrifoods, whose facilities are nearby. In case you want to visit it, it is called the Daqing Manhaway Hotel (大庆曼哈维大酒店).

On October 21st, 2008, Ming Dequan released his feature length film called
A Tale of Two Donkeys at the Tokyo International Film Festival. Guess
who financed the movie without their knowledge? The investors of Celestial Nutrifoods! In order
to embezzle their funds so that the production of this movie could be
financed, Ming Dequan setup a company called Beijing Tianhua Xinyu Co.,
Ltd. (北京天华新宇有限公司). The movie was published by Beijing Tianyuanxinyu International Media
Co., Ltd. (北京天寰新宇国际传媒有限公司), Ming's music producing company.

This is the poster of A Tale of Two Donkeys (走着瞧), a feature length film produced by Ming Dequan (明德泉) and financed in its entirety with the money embezzled from the investors of Celestial Nutrifoods.

As provisional liquidator, FTI is exploring the possibility of turning Celestial around or, alternatively, liquidating the company.

Shareholders and creditors who have queries pertaining to the provisional liquidation of the company should contact FTI Consulting staff, Mr Kelvin Zhang at +65 6831 7839 or Mr Hubert Chang at +65 6831 7837. In addition, you can contact Mr Hubert Chang on hubert.chang@fticonsulting-asia.com. Alternatively, you can write to FTI Consulting at the following address:

Celestial Nutrifoods is insolvent, in part because of large, unexplainable cash outflows from the company's accounts in 2008 / 2009, preceding the firm's mid 2009 bond default. FTI, the court appointed provisional liquidator, has confirmed that these cash outflows represent unusual and, most likely, fraudulent conveyances.

Fraudulent conveyances, if they have occurred, are a type of corporate fraud. Investors have a right to demand that fraudulent conveyances are recovered so that investors can seek to recoup some of their losses.

The MAS must be made aware of the irregular cash outflows immediately; FTI (the provisional liquidator) deserves to receive full regulatory support as it investigates Celestial Nutrifoods and the cash outflows that occurred at the firm in 2008 / 2009. Fraud must be prosecuted to uphold the integrity of Singapore's capital markets.

Write to MAS Financial Supervision Department at the following address:

SGX encourages investors to report securities issuers who are violating corporate governance standards or breaching SGX rules and regulations. Investors must raise awareness of the questionable conduct at Celestial Nutrifoods over the last few years.

Specifically, investors must complain about the irregular, inconsistent and incomplete disclosure made by Celestial in the company's SGX filings. Management misrepresented its intentions in 2008/2009 when it declared publicly that it was preparing to redeem outstanding convertible bonds. Also, the massive "investments" that were made by management have never been properly accounted for. This lack of transparency is unacceptable for an SGX listed company.

Celestial Nutrifoods' management has overseen a massive destruction of value over the last 2 years and has proven itself to be incapable of managing the affairs of the company. At the very least, management has shown itself to be incapable of managing the financial affairs of the company.

Sadly incompetence is just part of the story. Based on recent investigations, it appears that Celestial's management may have deliberately siphoned cash out of Celestial Nutrifoods in the months preceding the 2009 bond default. These cash flows are at the heart of the firm's current insolvency.

If the above is indeed true, management may have engaged in an act of corporate fraud. Note that FTI consulting, the court-appointed provisional liquidator, has identified large, unexplainable cash outflows in 2008 and 2009 and is in the process of preparing legal action to recover these cash outflows.

Celestial Nutrifood's management must clearly go, but the Board of Directors is equally guilty of incompetence and has shown itself to be complicit in the management team's dealings. By law, the Board has a fiduciary duty to protect and promote the interests of shareholders. The Board has clearly failed in this regard by allowing management to ruin the firm.

The bottom line is simple: management and the Board must be removed immediately. In order to achieve this, shareholders should provide FTI full support as it attempts to seize control of Celestial Nutrifoods. Shareholders should also contact SGX and MAS to raise the awareness of the issue.

In June 2009, Celestial Nutrifoods announced its inability to redeem SGD 235 million of convertible debentures. This constituted an act of default and caused trading of its shares on the SGX.

Almost two years have passed since and things have gone from bad to worse. Fundamentals have deteriorated rapidly, restructuring attempts were attempted (then abandoned), and finally in December 2010 FTI Consulting was appointed by the High Court of Singapore to act as provisional liquidator. As provisional liquidator, FTI is exploring strategic options to rehabilitate the firm, although a full liquidation of the company cannot be ruled out at this point.

All corporate defaults are distressing situations from an investor perspective. However, the Celestial Nutrifoods default is particularly disturbing because it seems to have been an entirely avoidable event. Cash reserves were sufficient to cover the outstanding SGD 235 million debt obligation as late as September 2008. And the management team of Celestial Nutrifoods claimed publicly that it was preparing for a possible bond redemption. Instead of conserving cash, however, management initiated an unprecedented spending spree in the 4Q 2008 and 1Q 2009. The magnitude of the "investments" made a default in June 2009 unavoidable.

Celestial's management needs to be held accountable for its actions leading to the default. The default destroyed value and even today great uncertainty remains as to whether the firm will be able to continue as a going concern.

At best, management is guilty of incompetence and severe mismanagement of the company’s finances. At worst, investors have been robbed by management and the Board of Directors. Note that FTI has identified large cash outflows at Celestial; FTI believes these cash outflows represent fraudulent conveyances. If Celestial's management and Board have stolen from investors, they must be prosecuted to the full extent of the law.

In the meantime, investors need to stay updated on developments and let their voices be heard. If you are an impaired investor, speak your mind. Contact the SGX and MAS and raise awareness of the plight of Celestial investors.

Cast of characters in the Celestial Nutrifoods Saga as of January 2012.

Ming Dequan (明德泉). Celestial Nutrifoods Executive Chairman. Multimillionaire living a high life in China and Europe. In 2007, he began producing music using Celestial's funds. In 2008, he produced a movie called A Tale of Two Donkeys (走着瞧) using Celestial's funds. In 2009, he built the Daqing Manhaway Hotel (大庆曼哈维大酒店) using Celestial's funds. In 2010, he misappropiated Celestial's Chinese subsidiaries. In 2011, using Celestial's funds, he produced a concert in Vienna to promote songs published by his music producing company, Beijing Tianyuanxinyu International Media Co., Ltd. (北京天寰新宇国际传媒有限公司), which was established using Celestial Nutrifoods' funds.

Loo Choon Chiaw. Independent director. Resigned on August 10th, 2011. Managed to delay for one year the liquidation of the Company. Left the promotion committe at the Singapore Academy of Law on 2011. Friend of Quentin Loh.

Lai Seng Kwoon. Independent director. Resigned on August 10th, 2011. In 2009, he received a payment of 130,000 Singapore dollars for services rendered to Celestial Nutrifoods.

Quentin Loh. Judge since December 24th, 2010. Head of the promotion committee at the Singapore Academy of Law. Friend of Loo Choon Chiaw. One month before presiding Celestial Nutrifoods' bankruptcy, in a related case of blatant corruption, Loh sent author Alan Shadrake to jail for writing a book critical of Singapore's justice system.

Lai Siu Chiu. Judge since December 2nd, 2011. Took over from Quentin Loh.

Yit Chee Wah. Liquidator. Investigating the affairs of the Company since 2010. In 2007, he was temporarily suspended as a public accountant by ACRA because of a failure of his practice review. Currently, he simultaneously works for three different companies: FTI Consulting, 2MS Consultancy and McMillan Woods.

Blog Archive

About Me

Ming Dequan (明德泉) is the Executive Chairman of Celestial Nutrifoods, which used to be listed in the Singapore Exchange. The blog "Celestial Nutrifoods" is intended to track the legal outcome of Celestial Nutrifoods, whose assets reached 800 million Singapore dollars by the time it was delisted, and to facilitate communications among shareholders and bondholders. So please comment as much as possible. The other blog, "Ming Dequan", seeks to track the life of Ming Dequan whilst investors wait for any outcome.
Blogs:
http://celestialnutrifoods.blogspot.com
http://mingdequan.blogspot.com